Do you know about - The Year-End 2009 Multifamily Investor's Crystal Ball
Austin Recovery! Again, for I know. Ready to share new things that are useful. You and your friends.2009 is arrival to a close and there are steadily increasing signs that the multifamily business (at least on the renting side) is on the mend. More and more markets show increasing occupancy and stabilizing rents. So, what lies ahead?
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First, a lot more properties are headed for bankruptcy or foreclosure. Loan to Value (Ltv) requirements have risen. Sponsor taste requirements have climbed. Liquidity demands are rising. Investors are likely seeing the beginning of the best business buying opportunity of this generation. Even great the opportunity will persist for sometime to come with terms enhancing for the next 6 to 12 months. We believe this is a two year buying opportunity.
At the same time, the business customer basis is on the uptrend. Demographics point to more renting. Reputation requirements are putting long term downward pressure on home purchases. While substitution will remain a factor for some time to come in, especially in the most over built metropolitan areas, the fact is renting is a long term trend that is putting the business on a trend for at least a decade of unprecedented growth.
The next query to think is where will account run low most rapidly and yet prices be strongest. The answer is perhaps more straight transmit than most are considering. Which areas of the country have suffered least while the downturn? perhaps local economies driven by vigor and commodity products that were less overbuilt than places like Phoenix, Jacksonville, Altanta, etc.
We are betting that the best bets are the vigor belt states. Cities like Dallas, Houston, Austin, San Antonio, Oklahoma City, Baton Rouge, Savannah, are areas we like as locations that will bounce faster and higher than most. These areas are less over burden with debt, less impacted by foreclosure blight, and ready to advantage from a surging emerging economies as the commodities these areas produce drive business.
Interestingly, while some of these areas did not boom as greatly with housing they may offer excellent multifamily purchases as banking funds made many poor bets in these same locations.
The next big query mark investors need to keep in mind is the interest rate environment we will face. Increasingly, the trends recommend that the federal support will not be able to hold the line for all of 2010 on interest rates. Until recently, all sources expected the fed to hold the line on rates. Indeed, many still insist that no convert in the interest rate environment was on the horizon; however, these same sources increasingly couch this as the federal support will hold out on changes until they are "sure" the salvage is firm. The author believes the writing is on the wall and no later than third quarter rates will be trending upward. Rates should continue to ratchet upward for the following 24 to 26 months finally steading out at nearby 6% for the 10 year treasury by the close of 2013. At the same time, interest rate spreads can be expected to fall to 120 to 180 basis points resulting in long term 5 year and 10 year financing rates ready at in the middle of 7.5% and 8.5% for stabilized multifamily properties.
The general banking environment is another leading consideration that extends beyond interest rate spreads. We expect banking to begin lending aggressively to qualifying investments. Because of the cash flow based value in multifamily, the business will be an early and strong beneficiary. Nevertheless, the environment is changing. Focus is keen from "stabilized" percentages to more basic measures. Bankers will increasingly focus on asset quality, cash flow, top line revenue, enough maintenance and operating reserves. Key banking measures will be suitable loan to value, suitable debt assistance coverage ratios, and reasonable net operating revenue parameters.
At the same time, the upshot of this aggregate of factors is that the likelihood in the latter part of 2010 that the cheaper will taste higher inflation than we have seen in some time. Inflation may reach an annualized 6% to 8% rate by the close of 2010. Having reached that point economic momentum from exports and a tightening rate environment will bring inflation back into a 4% to 5% range by the close of 2011 and in the middle of 2% and 4% by the close of 2012.
Overall, the author believes that as the federal support begins to tighten the U.S. Store will gain strongly in the eyes of investors globally. This situation is expected to be particularly distinct for U.S. Real estate and especially the cash flow based multifamily business driven by momentum from inflation based total value gains, a rising dollar because of increasing rates, and strong basic demographic trends.
On the branch of demographic trends, 2010 will see the trends of the emerging echo boom, the rising impact of minority household formation, and growing baby boom renting trends will be strengthened by loss of faith in home ownership for wealth building, increased Reputation and down cost requirements for home purchasing, and increased salvage trends will drive increasingly larger percentages of new household formation to rentals and especially apartments.
As a result, the author believes that the multifamily business is particularly admittedly positioned on the outside of 2010 with even stronger momentum growing in the following years. There is no great time to think and invest in multifamily properties.
Finally, the author believes that change value is a major driver on long term value considerations. The rising query for commodities in the developing world combined with the falling dollar will have an leading bearing on these points. The net is commodities are likely to see steady strong commodity cost pressure for the foreseeable hereafter and this in turn will drive up change value. As a result, in place account will gain strong value momentum from this quarter.
Good luck and good hunting in 2010 and beyond.
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